Uncertainty over legal issues could cost JobsOhio more

Uncertainty over a pending legal challenge may have resulted in slightly higher borrowing costs for a $1.56 billion bond sale for JobsOhio, the state's privatized economic development agency.

Alan Johnson, The Columbus Dispatch

Uncertainty over a pending legal challenge may have resulted in slightly higher borrowing costs for a $1.56 billion bond sale for JobsOhio, the state’s privatized economic development agency.

The state went to the bond market Monday and Tuesday after initially delaying the action because of a decision last week by the Ohio Supreme Court to consider whether ProgressOhio and others have legal standing to challenge the constitutionality of JobsOhio. The liberal policy group accuses the Kasich administration of illegally funneling state revenue to the private development agency.

According to The Bond Buyer, a publication that tracks the bond industry, investors had mixed about the JobsOhio issue because of the unresolved court case. JobsOhio is using $100 million proceeds from a 25-year lease of state liquor proceeds to back the bonds.

A market memo issued Tuesday by Janney Capital Markets said the “lawsuit challenging the constitutionality of the state’s establishment of this non-profit issuer adds uncertainty for investors,” The Bond Buyer said. Another investor said he shied away. “Given the rate environment right now, I’m not sure I want to buy anything with this kind of hair on it.”

It was not immediately clear how much higher the state’s borrowing cost will be, or what happens to the bonds if the Supreme Court rules against the state.

A call seeking comment was left with JobsOhio spokeswoman Laura Jones.

Gov. John Kasich proposed creating JobsOhio as a private, non-profit organization to entice companies and jobs to Ohio. It replaced the public Ohio Department of Development.

ProgressOhio Executive Director Brian Rothenberg said by moving ahead with the bond sales, the Kasich administration “arrogantly and irresponsibly exposed the state of Ohio to a constitutional crisis in which our state would be obligated to pay $1.5 billion to investors, even if a court finds the funds constitutionally cannot be spent on JobsOhio. Gov. Kasich and Wall Street seem to have thumbed their noses at our court process and our state's constitution.”

The two major bond-rating agencies split in their opinion on the JobsOhio bonds. Standard & Poor’s gave it an AA rating, but Moody’s dropped it to A2, its sixth-highest rating. The agency’s overall state rate is AA1, its second-highest. Moody’s spokesman David Jacobson the issue was given a “developing” outlook, rather than the state’s “stable” outlook, specifically because of the unresolved court issue.

JPMorgan Chase and Citi are handling the bonds in two parts: a $410 million tax-exempt and $1.1 billion taxable series.